2014 2017 - NAFCU · payday-alternative loans to their members, brought ... Here’s a look at last year’s advocacy wins: CU Tax Exemption Safe. ... answered more than 770 questions

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NAFCU 2017 ANNUAL REPORT

2014 Daniel Weickenand testifies to House Financial Services subcommittee on CFPB rules

2017Sonya McDonald testifies to House Small Business subcommittee on MBL

2017Celebrating 50 years and beyond

2015 Dan Berger testifies to House Small Business Committee on cyber and data security

2012Lynette Smith testifies to House Financial Services subcommittee on the Dodd-Frank Act

NAFCU 2017 Annual Report2

2017 was another successful year of strong growth and evolution at NAFCU — and

this would not have been possible without NAFCU’s growing membership base.

This 2017 annual report provides an overview of NAFCU’s legislative and

regulatory wins for the credit union industry during the year; the association’s

award-winning compliance programs; new developments in education and

training resources; and the year’s financial results.

Throughout 2017, NAFCU:

› continued its aggressive advocacy to ensure the industry saw a reduction in

regulatory burden;

› was invited to the White House by President Donald Trump, and met with

several members of the administration to further advance the needs of

NAFCU’s members and the industry as a whole;

› became the first credit union trade association to join global blockchain

consortia;

› grew both membership and revenue; and

› maintained its focus on critical issues that are important to the credit union

industry as the organization is still led by a board of directors made up of

credit union CEOs and a dedicated staff.

In the year ahead, NAFCU will remain focused on ensuring member credit

unions have a voice on Capitol Hill, easy access to the association’s experts and

the best educational and compliance resources available.

Executive Summary

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NAFCU Chair and President’s ReportMarking its 50th anniversary in 2017, NAFCU witnessed

a successful year filled with high-profile meetings with

new administration officials and key policymakers,

an increase in national media presence, back-to-

back testimonies on Capitol Hill, rapid membership

growth and a fiscally sound budget. It was a year that

saw disruptive change both for government and the

marketplace, but it was one in which NAFCU and the

credit union industry continued to thrive.

During 2017, NAFCU pushed tirelessly to ensure

positive policy outcomes for the credit union industry.

Supported by an engaged membership — which

supplied NAFCU witnesses for nine congressional

hearings last year — and working with lawmakers

on both sides of the political aisle, we succeeded in

protecting the credit union tax exemption amid broad

tax reform. In addition, we advanced regulatory relief,

protected member business lending, won a roll-back

of a potentially harmful arbitration rule, protected

credit unions’ ability to provide fair, affordable

payday-alternative loans to their members, brought

credit unions closer to a corporate stabilization rebate

and kept the National Credit Union Administration

(NCUA) independent and safe from the congressional

appropriations process.

These are just a handful of accomplishments won

as the association also achieved new heights in

education excellence. At the same time, NAFCU

grew its reputation for delivering the best regulatory

compliance assistance in the industry: In addition

to closing the year with nearly 1,000 credit union

compliance officer certifications current, the

NAFCU Certified Compliance Officer program won

the prestigious American Society of Association

Executives Power of A Gold Award.

Amid these wins, NAFCU welcomed the first

state-chartered credit union CEO to our board of

directors, produced research in support of credit

union advocacy and operations and engaged with

two global blockchain consortia to give members

access and input to developments in cutting-edge,

distributed-ledger technology.

The past year was an exciting one for NAFCU and its

members, and we look forward to continuing down

this path.

Thank you for your trust. We look forward to serving

you throughout 2018.

B. Dan Berger

NAFCU President and CEO

Richard L. Harris

NAFCU Chair

From left: NAFCU President and CEO Dan Berger speaking at NAFCU’s 50th Annual Conference & Solutions Expo; Berger and Small Business Administration Administrator Linda McMahon signing a new Memorandum of Understanding to improve access to credit union small-dollar loans to small businesses; NAFCU Board Chair Richard L. Harris with Treasury Secretary Steven Mnuchin.


2017 Accomplishments

Advocacy: Winning for Credit UnionsNAFCU focused its advocacy efforts during 2017

on maintaining close relationships with lawmakers,

federal regulatory agencies and the administration as

it produced positive policy outcomes for the industry.

Working to advance credit union interests, NAFCU’s

executives, members and advocacy team logged more

than 40 in-person sessions with lawmakers, regulators

and administration officials and wrote more than 150

letters about issues important to the industry. NAFCU

member credit unions’ grassroots messages to Congress

during issue campaigns grew 315 percent from 2016.

The association’s members also represented

NAFCU as witnesses in nine hearings on Capitol

Hill, educating lawmakers about credit unions and

recommending legislation reflecting industry views on

cyber- and data security, member business lending

(MBL), housing finance reform and more.

Here’s a look at last year’s advocacy wins:

CU Tax Exemption SafeArmed with data and buttressed by grassroots

support, NAFCU succeeded in keeping the credit union

exemption intact throughout Congress’ work on the

2017 Tax Cuts and Jobs Act. NAFCU, in discussions

with lawmakers, Treasury and White House officials,

leveraged independent research that showed the

credit union exemption generates $16 billion a year

in economic growth and has created nearly 1 million

jobs over a 10-year period. NAFCU, before Congress

and in the press, also debunked and defused repeated

banking industry attacks on the exemption.

Stage Set for Share Insurance Fund DistributionNAFCU continued to push NCUA for a maximum

refund of corporate stabilization dollars to insured

credit unions. The NCUA closed the Temporary

Corporate Credit Union Stabilization Fund (TCCUSF),

merged it into the National Credit Union Share

Insurance Fund (NCUSIF) and set expectations of a

distribution to credit unions in the third quarter of 2018.

NCUA Independence PreservedDuring Congress’ work on 2018 appropriations,

NAFCU persuaded lawmakers of the need to

preserve an independent NCUA as credit unions’

primary federal regulator. A legislative provision that

would have placed the NCUA under congressional

appropriations was eliminated by a vote in the full

House as credit unions were in Washington for

NAFCU’s Congressional Caucus.

CU Lending Protected in CFPB Payday RuleLast year’s final CFPB payday lending rule takes

into account the concerns raised by NAFCU and its

members, avoiding disruption in credit unions’ ability

to meet members’ needs for short-term, small-dollar

loans. As urged by NAFCU, the final rule exempts all

loans issued by credit unions in conformance with

NCUA parameters for payday-alternative loans (PALs).

CU Regulatory Relief AdvancedThe Treasury

Department included

31 recommendations

from the NAFCU

Report on Credit

Unions in its report

on ways to grow

the economy through

financial industry

regulatory relief,

including suggestions

to review credit union capital requirements and the

current-expected-credit-loss (CECL) accounting

standard. Lawmakers also introduced regulatory relief

legislation that provided for a NAFCU-sought repeal of

the NCUA risk-based capital rule; MBL relief pertaining

to certain loans; and the ability for any credit union to

add underserved areas to its field of membership.

MBL Rule Improvements UpheldNAFCU supported the NCUA in its defense against

a banking industry lawsuit over the 2016 MBL rule.

The streamlined rule provided additional flexibility for

credit unions serving member small businesses within

the constraints of the federal statutory MBL cap. The

U.S. District Court for the Eastern District of Virginia

granted the NCUA’s motion to dismiss last January.

There was no appeal.

Brian Ducharme, president and CEO of MIT Federal Credit Union, testifying in front of a House Financial Services subcommittee to support legislation to stop the NCUA’s risk-based capital rule (RBC) from taking effect on Jan. 1, 2019.

24%

32%

44%

ALLOCATION OF CORPORATE STABILIZATION EQUITY AT YEAR END

Distributed to FICUs

Retained in SIF due to increase in NOL

Retained in SIF in order to return eq. ratio to 1.30%

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CUs Protected from Harmful Arbitration RuleCongress overturned the CFPB’s arbitration rule,

which NAFCU warned could have unintended

consequences for member-owned credit unions and

their members, including increased costs. NAFCU

strongly supports consumer protections but argued

credit unions should not have been included in the

rule given that they are not the bad actors the rule

was meant to target.

CDFI, NCUA Revolving Loan Funding SecuredNAFCU quickly pushed back on a proposal to

eliminate funding for the Treasury Community

Development Financial Institutions (CDFI) Fund,

which aids more than 300 CDFI-certified credit

unions, many in rural and underserved, economically

distressed areas. NAFCU sought and lawmakers

approved an increase in funding to $250 million for

the CDFI Fund and $2 million in funding for the NCUA

Community Development Revolving Loan Fund.

Data Security a Priority for Congress, White HouseNAFCU, leading the

industry’s push for a

national data security

standard, continued

meetings with lawmakers

and delivered testimony

before Congress to

push accountability

for all parties handling

sensitive data — including firms such as Equifax,

where a breach made some 147 million consumers

vulnerable. NAFCU also persuaded the administration

to be more transparent regarding federal government

vulnerabilities and their impact on financial regulation.

Education and Compliance AssistanceNAFCU last year expanded its reputation for best-in-

class education and compliance assistance for credit

union professionals and volunteers. In 2017, NAFCU

held 55 webcasts and 12 conferences, including an

additional, new Fall Regulatory Compliance School.

Conference attendance overall grew 14 percent; the

50th Annual Conference alone pulled 18 percent more

in registration than in the previous year.

Certifications grew, with current NAFCU Certified

Compliance Officer (NCCO) certifications totaling

985 and certifications of NAFCU Certified Volunteer

Experts, NAFCU Bank Secrecy Act Officers and

NAFCU Certified Risk Managers up 20 percent, 50

percent and 20 percent, respectively.

National AwardThe NCCO program earned

national recognition last year,

winning the American Society of

Association Executives (ASAE)

2017 Power of A Gold Award. The

NCCO program has certified more

than 1,500 credit union compliance

officers since its inception. In

issuing last year’s award, ASAE

recognized the NAFCU program for its longevity, quality

and success in helping compliance officers build and

maintain critical knowledge to advance their careers and

keep up with an ever-changing regulatory environment.

Debra Schwartz, NAFCU Board treasurer and president and CEO of Mission Federal Credit Union, testifying before the House Financial Services Subcommittee on Financial Institutions and Consumer Credit on data security.

From left: Attendees of NAFCU’s Management and Leadership Institute; NAFCU EVP and COO Anthony Demangone speaking at NAFCU’s CEOs and Senior Executives Conference; NAFCU celebrated 50 years at it’s Annual Conference & Solutions Expo in Hawaii; NAFCU EVP of Government Affairs and General Counsel Carrie Hunt speaking at NAFCU’s Congressional Caucus.


Compliance AssistanceDuring 2017, NAFCU’s regulatory compliance team

answered more than 770 questions per month, on

average, keeping response times to one business

day or less; and wrote nearly 200 blog posts and 33

articles. It also produced resources to keep members

current on their regulatory obligations under the Truth

in Lending Act/Real Estate Settlement Procedures

Act integrated mortgage disclosures rule; mortgage

servicing rules; the Home Mortgage Disclosure Act;

and federal data and cybersecurity requirements.

Also, when credit unions began being targeted

by frivolous litigation claiming the credit unions’

websites were not compliant with the Americans with

Disabilities Act (ADA), NAFCU’s compliance team

made resources freely available to the credit union

industry. In December, taking the lead on this critical

issue among credit union trade associations, NAFCU

began filing amicus briefs supporting credit unions

fighting these lawsuits.

Actionable ResearchNAFCU commissioned an independent study that

shows the positive impacts of the credit union

federal income tax exemption on the U.S. economy

and consumers. Study findings aided NAFCU and

its members in discussions with lawmakers and the

administration on the need to preserve the exemption,

which is protected in the 2017 Tax Cuts and Jobs Act.

NAFCU, NAFCU Services Preferred Partner Allied

Solutions and OnApproach also teamed up with

renowned data scientists at Deep Future Analytics

in a study that tested five models for implementing

the Financial Accounting Standards Board’s CECL

standard, quantifying the pros and cons of each

model to help credit unions determine their best path.

Technology CollaborationNAFCU last year joined two global blockchain

initiatives, Hyperledger and Enterprise Etherium

Alliance (EEA), to bring critical knowledge of

blockchain technology to the credit union industry

and facilitate industry input for the development

of uses and tools credit unions need most. NAFCU

was the first U.S. financial industry trade to join

Hyperledger, created by The Linux Foundation and

the world’s largest blockchain consortium.

News, Special PublicationsNAFCU last year kept credit union leaders and staff

apprised of issues, industry trends, data-driven

insight and compliance developments through

a wide array of publications, including the daily

enewsletter NAFCU Today (and Breaking News), the

weekly NAFCU UPDATE, The NAFCU Journal (the

association’s bimonthly magazine, previously The

Federal Credit Union), Compliance Monitor, Economic

and CU Monitor, BSA Blast and other special-purpose

publications and enewsletters.

Media: TV, Radio, Print, OnlineNAFCU’s media outreach helped strengthen public

understanding of the value tax-exempt credit unions

provide to America’s consumers and small businesses.

With top hits on Fox Business’s “Countdown to the

Closing Bell,” Sirius XM’s POTUS channel, The Wall

Street Journal, Bloomberg, USA Today, U.S. News

and World Report, and in Capitol Hill and trade press,

NAFCU championed credit unions’ delivery of tailored,

affordable products and services, good practices and

strong data security.

From left: NAFCU Vice President of Regulatory Compliance Brandy Bruyere speaking at NAFCU’s Regulatory Compliance Seminar; NAFCU President and CEO Dan Berger on Fox Business Network’s Countdown to the Closing Bell; NAFCU Chief Economist and VP of Research Curt Long speaking at NAFCU’s CEOs and Senior Executives Conference.

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Debra Schwartz

NAFCU Treasurer

Randy Salser

NAFCU Services Corporation President

B. Dan Berger

NAFCU Services Corporation Chair and CEO

NAFCU Services Corporation Chair and President’s ReportLast year was another stellar year for NAFCU Services

Corporation (NSC). This wholly-owned subsidiary of

NAFCU identifies leading, innovative firms that are

committed to the credit union industry — connecting

credit unions to the best suppliers for almost any need.

NSC is unique in that these connections between

leading providers and credit unions take place through

a wide variety of valuable resources. Always studying

industry best practices, emerging trends and cutting-

edge solutions, NSC’s own vetting process and market

research help credit unions focus on the right suppliers

at the right time.

Quite possibly the most important part of NSC’s

services to the credit union industry is its unrivaled

educational content program. In 2017, NSC produced

and distributed a wide variety of educational resources,

all available through the online Partner Library and

including free, on-demand training from industry

experts. Education is key to credit union success;

any interested credit union staff can tune into NSC’s

free webinars, webcasts and podcasts featuring their

trusted Preferred Partner industry experts.

In 2017, more than 10,000 registrants participated in

the free webinars presented by NSC partners. All of the

webinars, webcasts, research reports and podcasts are

available through the Partner Library or through the

respective Preferred Partner web pages.

NSC also engaged credit unions through social media,

using the NAFCU Services Blog, the LinkedIn network

and Twitter to highlight thought leadership materials

and educational resources.

To learn more about NAFCU Services and their

portfolio of 28 leading industry providers, visit the

Preferred Partner section of the website

nafcu.org/nafcuservices/

NAFCU Treasurer’s Report NAFCU’s member focus and commitment to extreme

member service led to important results last year for

the industry in advocacy, education and compliance

assistance. More than that, it was another year of

strong membership growth and sustained financial

stability for the association, a reflection of the care

we take for our members and in the management of

members’ dues dollars.

NAFCU turned in a strong financial performance in

2017, and we did so while investing in new services and

technology to help us better deliver education and training

to NAFCU members in a cost-effective, efficient manner.

In 2017, NAFCU’s equity increased $560,239, and its

assets grew $1,743,315. This growth will help ensure that

NAFCU remains at the forefront of advocacy, education

and compliance assistance for the credit union industry.

NAFCU Services Corporation also added new partnerships

and products in order to provide the best available

solutions for credit unions and keep them competitive.

NAFCU will continue to set the standard for member

service and benefits in 2018, putting the needs and

concerns of its members across the country at the top

of our priorities list every day.

Thank you for your guidance, support and

cooperation. We look forward to working with you in

the coming year to ensure a bright and secure future

for our industry.


Independent Auditor’s ReportWe have audited the accompanying consolidated

financial statements of the National Association of

Federally-Insured Credit Unions and Affiliates (the

Organization), which comprise the statements of

financial position as of December 31, 2017 and 2016,

and the related consolidated statements of activities

and cash flows for the years then ended, and the

related notes to the consolidated financial statements.

Management’s Responsibility for the Consolidated Financial StatementsManagement is responsible for the preparation

and fair presentation of these consolidated

financial statements in accordance with accounting

principles generally accepted in the United States of

America; this includes the design, implementation,

and maintenance of internal control relevant to

the preparation and fair presentation of financial

statements that are free from material misstatement,

whether due to fraud or error.

Auditor’s ResponsibilityOur responsibility is to express an opinion on these

consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing

standards generally accepted in the United States of

America. Those standards require that we plan and

perform the audits to obtain reasonable assurance

about whether the consolidated financial statements

are free of material misstatement.

An audit involves performing procedures to obtain

audit evidence about the amounts and disclosures in

the consolidated financial statements. The procedures

selected depend on the auditor’s judgment, including

the assessment of the risks of material misstatement

of the consolidated financial statements, whether due

to fraud or error. In making those risk assessments,

the auditor considers internal control relevant to

the entity’s preparation and fair presentation of

the consolidated financial statements in order to

design audit procedures that are appropriate in the

circumstances, but not for the purpose of expressing

an opinion on the effectiveness of the entity’s internal

control. Accordingly, we express no such opinion. An

audit also includes evaluating the appropriateness

of accounting policies used and the reasonableness

of significant accounting estimates made by

management, as well as evaluating the overall

presentation of the consolidated financial statements.

We believe that the audit evidence we have obtained

is sufficient and appropriate to provide a basis for our

audit opinion.

OpinionIn our opinion, the consolidated financial statements

referred to above present fairly, in all material

respects, the consolidated financial position of the

National Association of Federally-Insured Credit

Unions and Affiliates as of December 31, 2017 and

2016, and the changes in its consolidated net assets

and its consolidated cash flows for the years then

ended in accordance with accounting principles

generally accepted in the United States of America.

Washington, DC

March 5, 2018

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Consolidated Statements of Activities

Year Ended December 31, 2017 2016

UNRESTRICTED ACTIVITIES

Revenue and support

Membership dues $9,053,631 $8,288,538

Membership education and training 4,882,249 4,121,302

Service fees 2,332,200 2,214,209

Advertising 381,948 404,370

Other 264,976 213,060

Interest and dividend income 243,147 209,795

Rental income 167,900 159,591

Products and services 92,399 94,987

Net assets released from restrictions 562,018 602,547

Total revenue and support 17,980,468 16,308,399

Expense

Program services:

Membership education and training 3,779,629 2,980,069

Communications and publications 597,044 526,193

Officials and committees 267,114 223,040

Legislative and regulatory 85,987 80,780

Membership 49,674 54,960

Products and services 23,199 21,315

Total program services 4,802,647 3,886,357

Supporting services

Administration and overhead 12,206,997 11,594,149

Building and occupancy 743,467 762,663

Total supporting services 12,950,464 12,356,812

Total expense 17,753,111 16,243,169

Change in unrestricted net assets before

investment gains (loss) 227,357 65,230

Unrealized gain (loss) on investments 173,218 (83,694)

Realized gain on investments 9,096 334,170

Change in unrestricted net assets 409,671 315,706

TEMPORARILY RESTRICTED ACTIVITIES

Contributions 709,152 820,037

Interest income 3,434 2,614

Net assets released from restrictions (562,018) (602,547)

Change in temporarily restricted net assets 150,568 220,104

Change in net assets 560,239 535,810

Net assets, beginning of year 12,483,039 11,947,229

Net assets, end of year $13,043,278 $12,483,039

See notes to consolidated financial statements.

Consolidated Statements of Financial Position

December 31, 2017 2016

ASSETS

Cash and cash equivalents $4,259,635 $3,478,237

Accounts receivable 353,913 592,388

Prepaid expenses and other assets 530,556 676,033

Investments 16,660,590 15,171,651

Deferred compensation investments 372,113 416,989

Property and equipment, at cost

Land 1,309,226 1,309,226

Building and improvements 6,167,442 6,147,666

Furniture and equipment 2,360,522 2,086,600

Total property and equipment, at cost 9,837,190 9,543,492

Less accumulated depreciation and amortization (7,088,876) (6,696,984)

Total property and equipment, net 2,748,314 2,846,508

Total assets $24,925,121 $ 23,181,806

LIABILITIES AND NET ASSETS

Liabilities

Accounts payable and accrued expenses $ 2,278,347 $ 1,922,477

Deferred revenue 9,022,829 8,212,341

Tenant deposits 14,349 14,349

Deferred compensation liability 566,318 549,600

Total liabilities 11,881,843

10,698,767

Net assets

Unrestricted 11,508,154 11,098,483

Temporarily restricted 1,535,124 1,384,556

Total net assets 13,043,278 12,483,039

Total liabilities and net assets $ 24,925,121 $ 23,181,806


Consolidated Statements of Cash Flows

Year Ended December 31, 2017 2016

CASH FLOWS FROM OPERATING ACTIVITIES

Change in net assets $560,239 $535,810

Adjustments to reconcile change in net assets

to net cash provided by operating activities:

Depreciation and amortization 402,261 429,927

Net gain on investments (182,314) (250,476)

Changes in assets and liabilities:

Accounts receivable 238,475 (117,575)

Prepaid expenses and other assets 145,477 (237,473)

Deferred compensation investments 44,876 (100,555)

Accounts payable and accrued expenses 355,870 (116,358)

Deferred revenue 810,488 875,744

Deferred compensation liability 16,718 118,736

Total adjustments 1,831,851 601,970

Net cash provided by operating activities 2,392,090 1,137,780

CASH FLOWS FROM INVESTING ACTIVITIES

Proceeds from sales of investments 5,107,881 5,107,881

Purchases of investments (6,414,506) (6,883,895)

Purchases of property and equipment (304,067) (94,563)

Net cash used in investing activities (1,610,692) (1,870,577)

Net increase (decrease) in cash

and cash equivalents 781,398 (732,797)

Cash and cash equivalents, beginning of year 3,478,237 4,211,034

Cash and cash equivalents, end of year $4,259,635 $3,478,237

Supplemental Disclosure of Cash Flow Information

Cash paid during the year for income taxes $24,200 $24,496


Notes to the Consolidated Financial Statements

A. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Organization: The National Association of Federally-Insured Credit

Unions (the Association), located in the Washington, D.C. area, is a direct

membership association for federally-insured credit unions. Founded

in 1967, the Association’s primary purpose is to represent its members

before Congress and the federal regulatory agencies. The Association

also provides its members with a source of reliable information through

its publications, educational programs, regulatory compliance assistance,

and economic research. The Association’s members are among the

most progressive institutions in the industry. On November 14, 2016,

the Association adopted the “doing business as” name of National

Association of Federally-Insured Credit Unions. The Association’s official

corporate name is National Association of Federal Credit Unions, Inc.

The Association’s wholly-owned for-profit subsidiary, NAFCU Services

Corporation (NSC), is incorporated in the District of Columbia. NSC

was organized to provide consulting and marketing efforts for various

services offered by vendors to the credit union community. NSC’s

primary fee sources result from marketing agreements between NSC

and third party entities providing services to credit unions.


The National Association of Federal Credit Unions Political Action

Committee (the PAC) was organized to conduct political activities on

behalf of the Association’s members.

The National Association of Federal Credit Unions Foundation for

Charitable, Literary, Educational and Humanitarian Purposes (the

Foundation) was incorporated in April 1995 in the Commonwealth

of Virginia. The purpose of the Foundation is to promote charitable,

literary, educational and humanitarian causes of interest to credit

unions and those associated with them.

Income tax status: The Association is exempt from the payment of

income taxes on its exempt activities under Section 501(c)(6) of the

Internal Revenue Code. Under the Code, advertising revenue earned

from the publication of the Association’s magazine and other income

earned from transactions with NSC are subject to unrelated business

income taxes.

The PAC is a separate segregated fund as defined under Section

527(f)(3) of the Internal Revenue Code. As such, the PAC is subject

to income taxes on the lesser of its exempt activity expenditures or

investment income.

The Foundation is exempt from the payment of income taxes on its

exempt activities under Section 501(c)(3) of the Internal Revenue

Code. The Foundation has been classified as other than a private

foundation by the Internal Revenue Service.

NSC is a taxable corporation. As such, it pays Federal and State

income taxes on its net taxable income.

Principles of consolidation: The consolidated financial statements

include the accounts of the Association, NSC, the Foundation, and

the PAC. Significant intra-entity accounts and transactions have been

eliminated in consolidation. For purposes of these consolidated financial

statements, the entities are referred to collectively as the Organization.

Basis of accounting: As required by U.S. generally accepted accounting

principles (GAAP), the Organization prepares its financial statements on

the accrual basis of accounting. Revenue is recognized when earned and

expense is recognized when the obligation is incurred.

Use of estimates: The preparation of financial statements in

accordance with U.S. generally accepted accounting principles

requires management to make estimates and assumptions that affect

certain reported amounts and disclosures. Actual results could differ

from estimates.

Cash and cash equivalents: For financial statement purposes, the

Organization considers all mutual funds, exchange traded funds

(ETFs), unrestricted money market funds, and certificates of deposit

to be other than cash equivalents.

Accounts receivable: Accounts receivable consist primarily of

amounts owed from NSC Preferred Partners as a result of royalty/

marketing agreements. Accounts receivable are presented at the

gross, or face, amount due to the Organization. The Organization’s

management periodically reviews the status of all accounts receivable

balances for collectability. Each receivable balance is assessed based

on management’s knowledge of the customer, the Organization’s

relationship with the customer, and the age of the receivable

balance. The Organization has established an allowance for any

invoices it believes may be uncollectable. The Organization believes

all receivables are fully collectable at December 31, 2017 and 2016;

consequently, no allowance for doubtful accounts has been recorded.

Property and equipment: Acquisitions of property and equipment

are recorded at cost. Depreciation is calculated using the straight-line

method over the following useful lives of the various classes of assets:

Building and improvements 5 - 39 years

Furniture and equipment 3 - 7 years

Deferred revenue: Deferred revenue principally consists of

membership dues, subscriptions, and conference/seminar payments

received in advance. Membership dues and subscriptions are

recognized as revenue over the duration of the related membership

or subscription. Conference and seminar registration fees are

recognized as revenue once the related meeting has taken place.

Net assets: For financial statement purposes, net assets are as follows:

Unrestricted: Unrestricted net assets are available for general

operations.

Temporarily restricted: Temporarily restricted net assets represent

the portion of net assets that have been restricted by donors (see

Note D).

Contributions: Contributions are recorded as unrestricted or temporarily

restricted support depending upon the existence and/or nature of any

donor restrictions. Support that is not restricted by the donor is reported

as an increase in unrestricted net assets. Donor-restricted support is

reported as an increase in temporarily restricted net assets and then

reclassified to unrestricted net assets when the restriction expires.

Functional reporting of expenses: The Organization reports the direct

costs of operating its programs as “program services” expense on the

statement of activities. All salaries, occupancy, and administrative costs

are reported as supporting services on the statement of activities.

Subsequent events: Subsequent events have been evaluated through

March 5, 2018, which is the date the consolidated financial statements

were available to be issued.

B. CREDIT RISK AND FLUCTUATIONS IN FAIR VALUE

Credit risk: The Organization maintains demand deposits with federal

credit unions and money market funds with financial institutions. At

times, certain balances held within these accounts may not be fully

guaranteed or insured by the U.S. federal government. The uninsured

portions of cash and money market accounts are backed solely by

the assets of the underlying institution. As such, the failure of an

underlying institution could result in financial loss to the Organization.

Market value risk: The Association also invests in money market funds,

certificates of deposit, mutual funds, and exchange traded funds

(ETFs). Such investments are exposed to market and credit risks.

Thus, the Association’s investments may be subject to significant

fluctuations in fair value. As a result, the investment balances

reported in the accompanying consolidated financial statements may

not be reflective of the portfolio’s value during subsequent periods.

C. INVESTMENTS

Investments are carried at fair value and consisted of the following as

of December 31,:

2017 2016

Money market funds $7,425,953 $7,110,232

Fixed income mutual funds and ETFs 5,681,482 5,192,592

Certificates of deposit 2,000,000 1,500,000

Equity mutual funds and ETFs 1,553,155 1,368,827

$16,660,590 $15,171,651

Investment return consists of the following

during the years ended December 31,:

2017 2016

Interest and dividends $246,581 $212,409

Net gain on investments 182,314 250,476

$428,895 $462,885

D. TEMPORARILY RESTRICTED NET ASSETS

Temporarily restricted net assets consist of $1,530,124 and $1,384,556

for the NAFCU PAC Administration fund and for lobbying activities

as of December 31, 2017 and 2016, respectively. Additionally, the

Foundation received a $5,000 contribution during the year ended

December 31, 2017, to be used for a future purpose.

11

E. SUPPORTING SERVICES

The major components of the Organization’s consolidated supporting

service expenses consist of the following for the years ended December 31,:

2017 2016

Employee compensation and benefits $10,027,164 $9,401,132

Building operations 743,467 762,663

Depreciation 135,018 162,297

Professional services 430,946 430,925

Other 1,613,869 1,599,795

$12,950,464 $12,356,812

F. RETIREMENT PLANS

Deferred compensation plans: The Organization has established

nonqualified deferred compensation plans under the Internal Revenue

Code for certain eligible executives. The total liability accrued for

the deferred compensation plans was $566,318 and $549,600 as of

December 31, 2017 and 2016, respectively.

Defined contribution plan: The Organization maintains a defined

contribution retirement plan covering substantially all full-time

employees who meet certain age and length of service requirements.

Employees are fully vested on attaining five years of service.

Retirement plan expenses charged to operating expenses in 2017 and

2016 were $685,484 and $539,984, respectively.

G. COMMITMENTS AND CONTINGENCIES

The Organization leases a portion of its headquarters building under

operating leases which expire through 2021. The approximate future

minimum payments to be received under the operating leases are as

follows for the year ending December 31,:

2018 $173,000

2019 182,000

2020 191,000

2021 107,000

$653,000

H. INCOME TAXES

NSC: NSC accrues a liability for certain compensation expenses that

are not deductible for income tax purposes until the obligations

are paid in cash. As a result, these compensation accruals create a

deferred tax asset. The total deferred tax asset related to anticipated

future compensation expense deductions equaled $15,080 and

$8,583 as of December 31, 2017 and 2016, respectively.

As of December 31, 2017, NSC has accumulated operating losses of

approximately $6,000 which may be carried forward to offset taxable

income through the year 2036. An estimated deferred tax asset of $1,170

and $13,910 has been recorded at December 31, 2017 and 2016, respectively,

to account for the potential future benefit of these operating losses.

NSC has unused charitable contribution deductions that may be

used to offset future income tax liabilities through the year 2022.

As of December 31, 2017, total unused charitable contributions

approximated $11,000. Due to uncertainty regarding NSC’s future

ability to utilize these deductions, a valuation allowance has been

recorded to completely offset any related deferred tax asset.

The deferred tax asset totaled $16,250 and $22,493 at December

31, 2017 and 2016, respectively, and is recorded as a component of

prepaid expense and other assets.

NAFCU: The Association earns unrelated business income on the

sale of advertising in its publications. The Association incurred

approximately $8,000 and $14,000 in net unrelated business income

tax for the years ended December 31, 2017 and 2016, respectively.

I. FAIR VALUE MEASUREMENTS

The Organization has implemented the accounting standards topic

regarding fair value measurements. This standard establishes a

framework for measuring fair value in accordance with generally

accepted accounting principles and expands disclosures about fair

value measurements. This standard uses the following prioritized

input levels to measure fair value. The input levels used for valuing

investments are not necessarily an indication of risk.

Level 1 – Observable inputs that reflect quoted prices for identical

assets or liabilities in active markets such as stock quotes;

Level 2 – Includes inputs other than level 1 inputs that are directly

or indirectly observable in the marketplace such as yield curves or

other market data; and

Level 3 – Unobservable inputs which reflect the reporting entity’s

assessment of the assumptions that market participants would use

in pricing the asset or liability including assumptions about risk

such as bid/ask spreads and liquidity discounts.

FAIR VALUE MEASUREMENTS (CONTINUED)

The Organization’s investments and deferred compensation investments were measured at fair value on a recurring basis using the following

input levels at December 31:

2017 Fair Value (Level 1) (Level 2) (Level 3) Equity mutual funds and ETFs $1,553,155 $ 1,553,155 $ - $ -Fixed income mutual funds and ETFs 5,681,482 5,681,482 - -Certificates of deposit 2,000,000 - 2,000,000 -Deferred compensation investments (mutual funds) 372,113 372,113 - - Investments Carried at Fair Value 9,606,750 $7,606,750 $2,000,000 $ -Money Market funds* 7,425,953 $17,032,703

2016 Fair Value (Level 1) (Level 2) (Level 3) Equity mutual funds and ETFs $1,368,827 $1,368,827 $ - $ -Fixed income mutual funds and ETFs 5,192,592 5,192,592 - -Certificates of deposit 1,500,000 - 1,500,000 -Deferred compensation investments (mutual funds) 416,989 416,989 - - Investments Carried at Fair Value 8,478,408 $ 6,978,408 $ 1,500,000 $ -Money Market funds* 7,110,232

$15,588,640

*Money market funds included in the investment portfolio are not subject to the provisions of fair value measurements as they are recorded at cost.

The Organization’s investments in certificates of deposit are carried at each instrument’s face value. Management has concluded that face value approximates the fair value of these instruments.

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1969First ATM in the U.S.

1986 Blocking attempts to tax credit unions

1998 The Campaign wins: President Bill Clinton signs the Credit Union Membership Access Act

1996The Credit Union Campaign for Consumer Choice is conceived

1977 President Jimmy Carter signs NAFCU-backed legislation, greatly expanding credit union powers

1970Creation of NCUA and the National Credit Union Share Insurance Fund

1967NAFCU was formed by a group of credit unions

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2014 2017 - NAFCU · payday-alternative loans to their members, brought ... Here’s a look at last year’s advocacy wins: CU Tax Exemption Safe. ... answered more than 770 questions